“State and local governments are trying unconventional ways to fund their pension liabilities, such as offering lump-sum cash payments to employees.”

For public plans, the first problem you’d have to overcome is taker bias. That is, those most likely to take a buyout would be cancer patients, heart attack survivors, AIDS victims, diabetics, overweight smokers, etc. You can’t, as a practical matter, screen them out, which would doom the idea. Even if you could, if you start with the correct premise that, one way or another, only a portion of scheduled benefits will in fact be paid, the lump sum discount would have to be really huge to make the state better off.

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Rick
4 years ago

So let’s say I’m a teacher retiring at 60 slated to receive a pension of 60,000 per year. With a life expectancy of 90 I should get 1.8 million dollars tax free as a buyout. Now I could live on the interest, and I could go take another full time job if I want. Sounds like a good deal.

Mike
4 years ago
Reply to  Rick

The typical pension for those retiring now in the Chicago suburbs, is a little more lucrative. Full TRS (public school teacher and administrators) benefits are obtained at 35 years of service, which for most is 33 or 34 years worked, as they can accumulate up to 340 sick days and exchange them for years of service credit. The number of sick days a teacher receives is included in the collective bargaining agreement which is required by state law to be posted on the school district website. The number of sick days a administrator receives is included in the administrator contract,… Read more »

Rick
4 years ago
Reply to  Mike

The biggest advantage of a buyout is that their pension can now be inherited by the kids. That’s huge. It will be costly to do, but paying everyone 2 million now, then put all new hires on defined contribution plans may be the only way out of the defined benefits business. The sick day policy should be “use it or lose” it each year, same for pickups, those need to end under defined contribution. Who wouldn’t take a buyout under these terms? Do it before the reserves all get consumed.